Republic concerned about slow sales of Bombardier CSeries, no plans to cancel

May 22, 2014
Ross Marowits, The Canadian Press

MONTREAL – Republic Airways is concerned about the slow pace of sales of the new Bombardier CSeries jet but has no plans to cancel its large order set for delivery beginning in about two years, the airline’s CEO said Thursday.

Bryan Bedford said the U.S. carrier continues to believe the plane has “game-changing technology” which is being proven through flight testing. And he’s not upset by delivery delays.

But he’s told the Montreal-based manufacturer that he can’t understand why the plane isn’t selling better.

“To us this is an airplane that should have much more commercial appeal than what’s going on in the marketplace today,” he said in an interview from Indianapolis, Ind.

“So this remains a concern for us in terms of our ability to finance it, residual values and the secondary trading market.”

Bombardier (TSX:BBD.B) says it has heard the same complaint from others but is comfortable with the order book, which includes commitments for 447 CSeries aircraft from 18 customers in 15 countries, including 203 firm orders. The company expects to have 300 firm orders when the first CS100 plane is delivered in the second half of 2015.

“It’s new technology; it’s at this point unproven technology but as the aircraft develops and the performance is proven we know that it’s going to be successful,” said spokeswoman Marianella de la Barrera.

Industry observers say Bombardier’s sales efforts are struggling because it is taking on deep pocketed aerospace giants Boeing and Airbus, which are aggressively selling their re-engined narrow-body aircraft.

Bedford said Republic intends to complete the US$3.06-billion deal for 40 CS300s but isn’t prepared to say how they would be deployed following the sale of its low-cost Frontier brand and the inability to use the planes in its core regional business with several airline partners.

“When the time is right we’ll reveal what our plans are for the product. It’s two-plus years away so we just don’t feel compelled to talk about it right now.”

Questions have been raised about the airline’s intentions for the aircraft after it announced a refocus of its regional service, which includes the phasing out of 50- and 100-seat planes to focus on Bombardier’s Q400 turbo and Embraer’s 170/175.

Bedford said the CSeries cannot operate for fixed-fee partners American Airlines, Delta or United, but could find a place in Republic Airways Holdings (Nasdaq:RJET), which owns three carriers operating in the United States: Chautauqua Airlines, Republic Airlines and Shuttle America.

Industry observers say Republic could ultimately sell the early production slots for the CSeries at a profit.

While all assets could theoretically be sold, Bedford said it is not the airline’s current intention.

“We haven’t been talking to anybody about selling our delivery positions. That’s just not a conversation that Republic’s been having with anybody, so that’s not the plan, that’s not our focus.”

Any move by Republic to ultimately not proceed with the CSeries delivery would be negative for the program, analysts said.

Walter Spracklin of RBC Capital Markets said concerns about Republic’s CSeries order are not new. The airline changed course by selling Frontier, which operated an all Airbus fleet. When Republic placed an order for A319 NEOs in 2011, there were worries that the CSeries order was in jeopardy.

“However, once Republic sold Frontier in 2013, we had thought that if anything, the A319NEO order would be the one that would likely be under review,” he wrote in a report.

On the Toronto Stock Exchange, Bombardier’s shares closed down five cents at $3.83 on Thursday.

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